Danger: The risk lurking in the US mortgage market

[Deleted]

http://money.cnn.com/2018/03/08/news...ngs/index.html

But today increasing danger lurks in the mortgage market, and economists say it could put the financial system at "even greater risk" when the next recession strikes or too many borrowers fall behind on their mortgage payments.

A growing segment of the mortgage market is being financed by so-called non-bank lenders — financial institutions that offer loans to consumers but don't provide saving or checking accounts.

Borrowers with poor credit have increasingly turned to these alternative lenders instead of traditional banks. The alternative lenders are subject to far less regulation and have fewer safeguards when borrower defaults start to pile up.

"What happens if interest rates rise and non-bank revenue drops? What happens if commercial banks or other financial institutions lose their taste for extending credit to non-banks? What happens if delinquency rates rise and servicers have to advance payments to investors?" the authors write.

"Less thought is being given, in the housing-finance reform discussions and elsewhere, to the question of whether it is wise to concentrate so much risk in a sector with such little capacity to bear it, and a history, at least during the financial crisis, of going of out of business," the authors write.

!
This NEEDS to be addressed!

We must make simple, but followable rules:
"If you want a mortgage: have ZERO debts and start with 30-45%." (to be adjusted)

This trivial method would help the entire economy TREMENDOUSLY:

a) "I work as a dish washer. Buying a four-bedroom estate with an indoor swimming pool and a sauna is more than I can afford, so I will settle for less."
= more secure market
b) "I work as a dish washer, but I want a four-bedroom estate. I really do. So I will make a choice, and educate myself! I will make myself worthy!"
= the awesome mind-set
c) "I work as a dish washer. I would like, at some point, own an island and a private jet. I will make a difference! I will start-up a company"
= those people advance mankind

Clearly, adjusting the market will advace it!

[Low Hanging Fruit]

I can't believe whats happened before may happen again.

[Deleted]

I can't believe whats happened before may happen again.

We must prevent that!

[Gorgodeus]

Requiring zero debt is the stupidest crap I have seen posted in awhile. Get back with us when you understand how financing works.

[The One Percent]

If you think the average person will follow any of those rules, you are naively optimistic.

[Xar226]

Zero debt and 45% down.

So you want everybody to rent. Got it.

[Low Hanging Fruit]

We must prevent that!

Good luck. Banks are in the business of handing large money out and collecting payments until people can't pay anymore and then seizing property and selling it for profit to other people they hand out money to, accept payments from, and then when they can't make payments seize the property again and sell it again. Banks pretty much are a ruling class in most thd world.

[Deleted]

Requiring zero debt is the stupidest crap I have seen posted in awhile. Get back with us when you understand how financing works.

I am sorry that you do not have any overview of the finances.
It's alright! Not many people understand it

Simply said:
"I want a Spectral Tiger from you. But I do not have the gold."
You: "Ok, you will pay me with interest."
"I am currently paying X in interests to Y people."
You: "Yeah, let's wait with the trade until you are actually able to pay ME."

- - - Updated - - -

If you think the average person will follow any of those rules, you are naively optimistic.

That's why we must MAKE the people to follow those rules "You won't get any money until:"

See WoW analogy: "I won't heal you unless you actually stop standing in fire."

[Gorgodeus]

I am sorry that you do not have any overview of the finances.
It's alright! Not many people understand it

Simply said:
"I want a Spectral Tiger from you. But I do not have the gold."
You: "Ok, you will pay me with interest."
"I am currently paying X in interests to Y people."
You: "Yeah, let's wait with the trade until you are actually able to pay ME."

- - - Updated - - -



That's why we must MAKE the people to follow those rules "You won't get any money until:"

See WoW analogy: "I won't heal you unless you actually stop standing in fire."

Hint: Spectral Tiger =/= a house mortgage

So again, get back with us when you understand how financing works.

[Celista]

ITT: OP does not understand finance.

[Crober]

I am sorry that you do not have any overview of the finances.
It's alright! Not many people understand it

Simply said:
"I want a Spectral Tiger from you. But I do not have the gold."
You: "Ok, you will pay me with interest."
"I am currently paying X in interests to Y people."
You: "Yeah, let's wait with the trade until you are actually able to pay ME."

Except that's not how financing works. Lenders also look at your income and determine your debt-to-income ratio while also including your credit history & length of employment. From there they decide whether you are an acceptable risk to give a loan to. The problem arises when companies get too lax on their requirements and start giving out too many high risk loans.

[AlphaOut]

Itd be amazing if people stopped buying shit they can't afford.

[Celista]

Itd be amazing if people stopped buying shit they can't afford.

The problem is that rental rates are nearly on par with mortgage rates now, and people have to live somewhere.

[Jonnusthegreat]

Zero debt sounds pretty dumb. Sounds like you don't want any graduate student to own a home until they are 35.

[chazus]

We must make simple, but followable rules:
"If you want a mortgage: have ZERO debts and start with 30-45%." !

So you've ruled out anyone with a college education or a car.
You've also ruled out anyone who doesn't have ~50,000 in cash. Which is just about everyone without a college education.

Brilliant.

[Darsithis]

This NEEDS to be addressed!

We must make simple, but followable rules:
"If you want a mortgage: have ZERO debts and start with 30-45%." (to be adjusted)

What? No. Carrying debt is not necessarily bad. If you can live within your means, even with debt, it is perfectly fine.

This trivial method would help the entire economy TREMENDOUSLY:

a) "I work as a dish washer. Buying a four-bedroom estate with an indoor swimming pool and a sauna is more than I can afford, so I will settle for less."
= more secure market

I very much doubt "dish washers" are buying four-bedroom homes with indoor swimming pools. This is serious hyperbole.

b) "I work as a dish washer, but I want a four-bedroom estate. I really do. So I will make a choice, and educate myself! I will make myself worthy!"
= the awesome mind-set

The implication that someone is working a menial position because they're "uneducated" is uneducated on its own.

c) "I work as a dish washer. I would like, at some point, own an island and a private jet. I will make a difference! I will start-up a company"
= those people advance mankind

Clearly, adjusting the market will advace it!

Your idea is just ridiculous.

The housing issues from 2008 weren't because everyone was buying homes they couldn't afford (though that was part of it), it was also due to predatory lending practices that took advantage of ignorance to push loans people could afford initially but were unaware would balloon later when the rates increased. Add in a big uptick in unemployment (which obviously makes it hard to pay your mortgage) and a number of Wall-Street scandals and boom.

I know that we Americans do have a bad habit of loading too much debt, but this idea won't help that at all, it'll make it next to impossible to buy a home.

[AlphaOut]

The problem is that rental rates are nearly on par with mortgage rates now, and people have to live somewhere.

Just because somebody can afford rent for $1500 does not mean that same person can afford a home with a $1500 mortgage.

[melodramocracy]

Just because somebody can afford rent for $1500 does not mean that same person can afford a home with a $1500 mortgage.

Exactly correct.

If mortgages were difficult to get, the housing market itself would be impacted pretty severely, which would have a bit of a snowball effect elsewhere. Mortgages have their interest severely frontloaded anyhow, which is why banks want to hand them out like candy.

[Shadowferal]

Zero debt means a really shitty credit score.

[AlphaOut]

Zero debt sounds pretty dumb. Sounds like you don't want any graduate student to own a home until they are 35.

Pretty much nobody would qualify, which is why it doesn't exist. A car payment counts as a debt, most people have one. Debt to income ratio usually works out well. The problem is a large percent of home buyers, especially first time ones, don't have much money saved; ie a rainy day fund. So they buy this house, then down the road they realize they cant afford the upkeep on it whilst paying their mortgage. Another thing I've seen is your property taxed rolled into your escrow. Which is absolutely fine, but expect your mortgage to fluctuate, usually upwards. People don't take into account these variables. They just look at a number and think, "oh yeah I can afford that." Its really silly. Then you have the people that just get a really stupid loan plan. Like a 5/1 loan.